Accounting for Cash Module 7 Illustration Petty Cash and Bank Reconciliations Correlated to “The Accounting Course Manual,” Craig M. Pence, 2004.

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Presentation transcript:

Accounting for Cash Module 7 Illustration Petty Cash and Bank Reconciliations Correlated to “The Accounting Course Manual,” Craig M. Pence, 2004

Cash and Cash Equivalents Cash and Cash Equivalents are important items on the Balance Sheet, since they are the most liquid of the company’s assets and have a big impact on the company’s perceived short-term solvency. Since there are many transactions involving cash collections and payments every day, it is important for the company to maintain sound internal control over its cash balances.

Payment by Bank Check Regarding cash, a good internal control is to always make payments by check. This way, the bank statement can be used to verify the company’s records regarding cash payments, and the returned checks will allow the company to verify the signature, amount, and payee for each expenditure.

Bank Reconciliation In order to use the bank statement for internal control, the company must prepare a bank reconciliation. This is an informal document that reconciles the differences between the bank statement’s reported cash balance and the company’s Cash account balance.

Deposits in Transit Outstanding Checks Errors Note Collections Interest Earned Errors Bounced Checks Charges & Fees All the adjustments to the company’s book balance require journal entries!

Journal Entries

Petty Cash Since not all payments can be made by check, companies maintain petty cash funds. The cash is kept in a secure place, and the petty cashier is responsible for authorizing payments from the fund and recording them on petty cash vouchers. Note: Petty Cash is debited only when the fund is first established or if it is later enlarged.

Replenishing the Fund $500 - $310 = $190. Is $190 of cash remaining in the box? Yes! All expenditures are accounted for. $500 - $310 = $190. Is $190 of cash remaining in the box? No! Only $185 is left in the box. $500 - $310 = $190. Is $190 of cash remaining in the box? No, $192 is left in the box.

End of the Presentation This ends the presentation. I hope it has been helpful to you in learning about cash management and accounting for cash. Remember, though, that practice is necessary in order to master accounting. Refer to your course manual, the textbook, and other online resources for the practice exercises that will help you master this topic!